Buying insurance is complicated for most people, no matter what the policy type might be. But it can be especially difficult when it comes to business insurance. To get the right policy at the most affordable premium, you’ll need to know how to get business insurance.
For that reason, we’ve prepared this guide for how to get business insurance in five steps. By the time you finish reading, you should have at least a general idea of the types of coverages you need to have and how to go about acquiring them.
At the same time, don’t hesitate to reach out to other resources. Business insurance is complicated, precisely because it’s highly business-specific, and has many moving parts. You can learn a lot just by researching business insurance providers and getting quotes. Here is how to get business insurance in 5 steps.
Step 1: Determine which types of business insurance you need
This is where you need to evaluate the specific risks your business faces. That will help you to determine the right types and amounts of coverage you’ll need, while excluding any policy provisions you may not need.
Relevant considerations include:
- Can your business continue if you become incapacitated?
- Do you have employees or contractors working for your business?
- Do you entertain customers or clients in your business premises, or perform work off-site?
- Does your business maintain databases of personal identifiable information?
- What physical assets does your business have?
- What types of lawsuits are common in your industry?
- Does your business provide a product or service? If it’s a service, is it a personal service (such as consulting, healthcare, or beauty services)?
- Does your business have multiple owners whose interests may need to be bought out upon their death?
The answers to each of these questions will reveal what type of business insurance coverage you’ll need, and also give you an idea of how much will be needed.
For example, if your business hires employees or contractors, you’ll need employment-related insurance coverage. If customers or clients regularly visit your business, you’ll need general liability coverage. If you own physical assets, like buildings, motor vehicles, or inventory, you’ll need property insurance.
Step 2: Assemble the necessary documentation
You’ll need to be prepared to supply the type of information and documentation that will be required by a business insurance provider. It is important to complete this step early in the process since it can take several weeks to assemble all that’s needed.
The type of documentation required will be specific to the policy type you want to purchase and the nature of your business. But common document requirements are likely to include the following:
- Business registration documents, including articles of incorporation, a partnership agreement, a business license, and a registration of a business name.
- Your employer identification number (EIN).
- Physical addresses of any business locations.
- The full names, physical addresses, Social Security numbers, and contact information for any owners of the business.
- Gross annual business revenues.
- The number of employees or contractors your business has, as well as the annual amount of payroll paid.
- A list of assets owned by your business as well as an estimate of their value. This can include real estate, motor vehicles, business equipment, leasehold improvements, and inventory.
Even after supplying the above information and documentation, an insurance company may request additional material.
Step 3: Shop around and get multiple quotes
When shopping for insurance you should get three or four quotes so you can make a side-by-side comparison to evaluate both the cost and the coverage provisions. This is especially important when it comes to business insurance since it has so many components.
There are various places you can shop for business insurance. You can use a business insurance agent but be aware that the agent may represent a single insurance company. That means the agent can provide you with only the policies he or she has available from that single provider.
A better option is to use a business insurance broker. That’s an agent who is licensed to sell business insurance policies provided by multiple companies. That will give you a better chance of getting the right fit on the policy, with a lower premium.
But what’s becoming more common when it comes to shopping for insurance is to take advantage of online insurance providers. There are such platforms available specifically for business insurance.
An example is Next. It’s an online business insurance company that specializes in coverage for small businesses. They have policies available for all types of businesses, and you can get instant quotes from the comfort of your home or business and then choose the ones that will be the best fit for you.
Step 4: Select and customize your policy
Once you’ve selected an insurance policy, you’ll need to customize it to match your business needs. For example, the amount of general liability coverage will largely be determined by the potential product liability that may be involved in the products or services you sell, as well as the number of customers and clients that visit your business locations.
Your coverage will also be determined by the amount of your annual sales, the number of employees you have, and the type and value of any physical assets used in the business.
Coverage levels can be adjusted for any of these variables.
Step 5: Review your business insurance annually and make any changes necessary
Both your business and the business environment change over time. That will require that you review and update your business insurance coverage, at least annually.
For example, if you purchase a policy when you have three employees, you’ll definitely need expanded coverage if you hire two more. And as you add assets and inventory to your business, you’ll need to increase your property coverage limits.
What insurance do you need for a small business?
Business insurance for a small business falls under five very general categories:
1. Liability insurance
In general, liability insurance covers hazards related to bodily injury claims by customers and employees and the lawsuits that may come with them.
The requirements for liability coverage are typically satisfied by a general liability insurance policy. It will provide you with protection against claims, up to the maximum benefit amount of the policy. If you are concerned that a liability may exceed your policy limits, you can add an umbrella policy providing a higher benefit. This is usually more cost-effective than increasing the limits of a general liability policy.
Another type of liability insurance is product liability. This may be necessary if you sell a product as it will provide protection from claims related to defects in – or injuries caused by – the items you sell.
Yet another type of liability coverage that’s becoming more important is cyber liability insurance. This type of coverage will protect you against claims incurred when customer data is compromised.
2. Professional liability insurance
Professional liability insurance is a very specific type of liability coverage that protects you and other owners and officers in your company against errors, omissions, and negligence. While this type of coverage is recommended for just about any type of business, it’s especially important if you are engaged in a personal services business.
3. Property insurance
This covers the assets of your business, including buildings, leaseholds, motor vehicles, business equipment, inventory, and other types of property.
Most noteworthy is commercial auto insurance. If you use a vehicle for business purposes, it may not be covered by a standard personal auto insurance policy. You’ll likely need to obtain a dedicated commercial auto insurance policy, especially if you have one or more vehicles used primarily or entirely in your business.
4. Employment-specific insurance
This policy type provides various types of coverage designed specifically to protect against claims by employees of your business.
Chief among them are workers’ compensation policies. If your business has employees or even contractors, you’ll be required by law to maintain this coverage. It provides income to employees if they are injured in a work-related accident or illness.
There are many other employment-related insurance policies you may want to include as employee benefits. Examples include employee life insurance, short-term disability insurance, and health insurance.
5. Business income insurance
This type of coverage primarily represents protection of the cash flow of your business. There are policies you can purchase that will at least partially replace income lost due to injury, illness, or destruction of business property. It may be referred to as either business income insurance or business interruption insurance.
Another type of business income insurance is loosely referred to as key person insurance. This is essentially a life insurance policy you take on individuals in your business who are critical to the operation and even survival of the business. Should that person die, the policy will pay the death benefit to the business to compensate for the loss that results from that person’s absence.
A key person policy can also be used by partners or officers in a closely held business. If one of the partners/officers dies, the policy will pay the surviving owners to enable them to buy out the deceased owner’s share of the business from his or her family.
When should you get business insurance?
If you have an existing business, it’s likely you’ll need to purchase new business insurance coverage any time your business changes significantly. And you’ll naturally want to consider purchasing new insurance if your current provider hits you with a major increase in your premium.
But the choice isn’t so easy if you are a new business owner. You may want to delay getting business insurance until your business has a steady cash flow. That will not only provide the revenue necessary to pay the business insurance premium, but it will also give a solid indication your business will continue as a going concern.
However, there are certain types of businesses you can engage in that may require coverage immediately. This is especially true with personal service businesses. If you’re a financial advisor, you could potentially be sued by a new client for providing advice the client believes to be inadequate or negligent. If you open a beauty salon, you could face a lawsuit over an injury sustained by a customer while in your care. And if you have employees, you’ll need to get employee-related coverage immediately.
Getting coverage when you start your business not only provides immediate protection but also gets you into the routine of maintaining necessary coverage. You certainly don’t want to wait until you’re hit with a lawsuit or a physical hazard before buying a policy.